Resale Price Method (RPM):
RPM method is related to CPM. This method is used where the vendor adds similarly little value to goods owned from associate enterprises. Here, Arm’s Length Price is determined by reducing the relevant gross profit mark-up from the sale price charged to free entity.
In this method the vendor adds comparatively small or no value to goods taken from associate enterprises. In the current case in this method may be taken as the very important method as similar data of comparable deals by independent entities is available.
The resale price method starts with the resale price to arm's length entities (of a goods buy from an non-arm's length entities ), minimized by a similar gross margin. This similar gross margin is resolute by reference to either:
- The resale price margin earned by a associate of the group in similar uncontrolled transactions (internal comparable); or
- The resale price margin earned by an arm's length enterprise in similar uncontrolled transactions (external comparable).
Beneath this method, the arm's length price of products obtain by a taxpayer in a non-arm's length deal is resolute by reducing the price understand on the resale of the products by the taxpayer to an arm's length entities, by an suitable gross margin. This gross margin, the resale margin, should allow the vendor to:
- Recover its operating costs; and
- Earn an arm's length profit support on the factors achieve, properties used, and the risks understood.